Review 105-----------Day 7 b. The liability arises from past event or transaction.

c. The payee to whom the obligation is owed must be identified.

THEORY OF ACCOUNTS d. The settlement of the liability requires an outflow of resources embodying economic
benefits.
1. If receivables are hypothecated against borrowings, the amount of receivables involved
should be 7. Which of the following is true when accounts receivable are factored without recourse?
a. Disclosed in the statements or notes a. The transaction may be accounted for as either a secured borrowing or as a sale.
b. Excluded from the total receivables, with disclosure b. The receivables are used as collateral for a promissory note issued to the factor by the
a. Excluded from the total receivables, with no disclosure owner of the receivables.
b. Excluded from the total receivables and a gain or loss is recognized between the face c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting
value and the amount of borrowings the receivables.
d. The financing cost should be recognized ratably over the collection period of the
2. It is a predetermined amount withheld by a factor as a protection against customer returns, receivables.
allowances and other special adjustments.
a. Equity in assigned accounts c. Commission 8. Notes receivable discounted with recourse should be
b. Service charge d. Factor’s holdback a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
3. Which statement is incorrect regarding requirement to present EPS? c. Excluded from total receivables with disclosure of contingent liability
a. An entity whose securities are publicly traded (or that is in process of public issuance) d. Excluded from total receivables without disclosure of contingent liability
must present, on the face of the income statement, basic and diluted earnings per share.
b. Basic and diluted earnings per share must be presented with equal prominence for all 9. Which of the following items should be included in a company’s inventory at the balance
periods presented. sheet date?
c. Basic and diluted EPS must be presented even if the amounts are negative. 1. Goods in transit which were purchased FOB destination.
d. If an entity reports a discontinued operation, basic and diluted amounts per share must 2. Goods received from another company for sale on consignment.
be disclosed for the discontinued operation on the face of the income statement. 3. Goods sold to a customer which are being held for the customer to call for at the
customer’s convenience.
4. Which statement is incorrect regarding basic EPS? 4. Goods in transit which were purchased FOB shipping point.
a. Basic EPS is calculated by dividing profit or loss attributable to common stockholders
of the parent entity by the simple average number of common shares outstanding during 10. Which statement is incorrect with respect to inventories under PAS No. 2?
the period. a. Inventories should be measured at the lower of cost and net realizable value.
b. The earnings numerators used for the calculation should be after deducting all b. The cost of inventories should comprise all costs of purchase, costs of conversion and
expenses including taxes, minority interests, and preferred stock dividends. other costs incurred in bringing the inventories to their present location and condition.
a. The denominator is calculated by adjusting the shares in issue at the beginning of the c. The cost of inventories of a service provider consists primarily of labor and other costs
period by the number of shares bought back or issued during the period, multiplied of personnel directly engaged in providing the service, including supervising personnel
by a time-weighting factor. and attributable overhead.
b. Contingently issuable shares are included in the basic EPS denominator if the d. The costs of conversion of inventories include costs directly related to the units of
contingency has been met. production such as direct labor, and a systematic allocation of variable production
overhead.
5. In computing diluted EPS, interest expense on convertible bond payable should be
a. Ignored 11. The inventories of a service provider may simply be described as
b. Deducted from net income net of tax a. Work in progress c. Unbilled receivables
c. Added back to net income at gross b. Billed receivables d. Deferred costs
d. Added back to net income net of tax
12. The cost of purchase of inventory does not include
6. Which is not an essential characteristic of an accounting liability? a. Purchase price
a. The liability is the present obligation of a particular entity. b. Import duties and taxes
 c. Freight, handling and other cost directly attributable to acquisition
d. Trade discount, rebate and other similar item A physical inventory taken on December 31, 2005 resulted in an ending inventory of
P4,500,000. The gross profit on sales remained constant at 30% in recent years.
13. The cost of inventories that are not ordinarily interchangeable and goods or services Benguet suspects some inventory may have been taken by a new employee. At
produced and segregated for specific projects should be assigned by using December 31, 2005 what is the estimated cost of missing inventory?
a. LIFO b. FIFO c. Average method d. Specific a. P5,000,000 c. P500,000
identification b. P4,500,000 d. P 0

14. Which costs may be capitalized as cost of inventories?

a. Normal shrinkage and scrap incurred for the manufacture of a product in ending inventory. 3. Luzon Company purchased Jolo Company for P100,000,000. The net assets of Jolo
b. Storage costs Company on the date of acquisition amounted to P80,000,000. Thus, there is a goodwill of
c. Selling costs P20,000,000. Jolo Company has three segments, each of which is considered a cash
d. Foreign exchange differences which arises directly on the recent acquisition of inventories generating unit. The goodwill is allocated respectively to segments One, Two and Three,
invoiced in a foreign currency. P5,000,000, P6,000,000 and P9,000,000.

15. Net realizable value is On December 31, 2005, Segment One suffered significant losses and its recoverable
a. Current replacement cost amount is P30,000,000. On December 31, 2005, the carrying amounts are as follows:
b. Estimated selling price
c. Estimated selling price less estimated cost to complete Segment One 28,000,000
d. Estimated selling price less estimated cost to complete and estimated cost to sell Segment Two 50,000,000
Segment Three 67,000,000
Goodwill 20,000,000
P1
In its 2005 income statement, Luzon Company should report impairment loss at
1. Sta. Rosa Company has been experiencing significant losses in prior years. On December
a. 3,000,000
31, 2005, the assets and liabilities are:
b. 5,000,000
c. 2,000,000
Cash 10,000,000
d. 1,000,000
Accounts receivable 20,000,000
Inventory 30,000,000
Property, plant and equipment 50,000,000 4. On January 1, 2003, Paete Company signed a 12-year lease for a building. Paete has an
Goodwill 5,000,000 option to renew the lease for an additional 8-year period on or before January 1, 2007. During
Liabilities 40,000,000 January 2005, Paete made substantial improvements to the building. The cost of the
improvements was P3,600,000, with an estimated useful life of 15 years. At December 31,
On December 31, 2005, the fair value of the net assets of Sta. Rosa is P62,000,000. 2005, Paete intended to exercise the renewal option. Paete has taken a full year’s
How much is the impairment loss applicable to goodwill? amortization on this improvement. In the December 31, 2005, balance sheet, the carrying
a. 13,000,000 amount of this leasehold improvement should be
b. 8,000,000 a. 3,240,000
c. 5,000,000 b. 3,360,000
d. 0 c. 3,400,000
d. 3,300,000
2. Benguet Company’s accounting records indicated the following for 2005:

Inventory, January 1 P6,000,000 5. On January 1, 2003, Puntavedra Company signed an eigth-year lease for office space.
Purchases 20,000,000 Puntavedra has the option to renew the lease for an additional six-year period on or before
Sales 30,000,000 January 1, 2009. During January 2005, Puntavedra incurred the following costs.
 d. 9,800,000
General improvements to the leased premises with useful 5,400,000
life of 10 years
Office furniture and equipment with useful life of 8 years 2,400,000 8. Biñan Company incurred the following costs during 2005:
Moveable assembly line equipment with useful life of 5 years 1,800,000
Design of tools, jigs, molds and dies involving new technology 2,500,000
Modification of the formulation of a process 3,200,000
At December 31, 2005, Puntavedra’s intention as to the exercise of the renewal option is
uncertain. A full depreciation of leasehold improvement is taken for year 2005. In Trouble shooting in connection of breakdowns during commercial production
Puntavedra’s December 31, 2005 balance sheet, accumulated depreciation of leasehold 2,000,000
improvement should be Adaptation of an existing capability to a particular customer’s need as part of
a. 1,200,000 a continuing commercial activity 2,200,000
b. 1,300,000
c. 540,000 In its 2005 income statement, Biñan should report research and development expense of
d. 900,000 a. 2,500,000
b. 3,200,000
c. 4,700,000
6. Maayon Company begins construction of a new facility. Following are some of the costs d. 5,700,000
incurred in conjunction with the start up activities of the new facility:

Production equipment 1,500,000 9. Dumalag Company provided the following information relevant to the research and
Travel costs of salaried employees 400,000 development expenditures for the year 2005:
License fees 50,000
Training of local employees for production and maintenance operations 1,300,000 Current period depreciation on the building housing R and D activities 1,500,000
Advertising costs 100,000 Cost of market research study 1,000,000
Current period depreciation on a machine used in R and D activities 500,000
What portion of the organizational costs will be expensed? Salary of R and D director 1,200,000
a. 1,700,000 Salary of Vice-President who spends ¼ of his time overseeing
b. 1,850,000 R and D activities 2,400,000
c. 3,350,000
Pension costs for salary of R and D director 50,000
d. 1,300,000
Pension costs for salary of Vice-President 100,000
7. Siniloan Company incurred research and development costs in 2005 as follows:
The R and D expense for the current period should be
Equipment acquired for use in various R&D projects 6,000,000 a. 3,875,000
Depreciation on the above equipment 1,200,000 b. 4,875,000
c. 5,750,000
Materials used 3,000,000
d. 3,800,000
Compensation costs of personnel 4,000,000
Outside consulting fees 1,500,000
Indirect costs appropriately allocated 1,300,000 10. Biñan Company made the following expenditures relating to Product X:

The 2005 total research and development expense should be * Legal costs to file a patent on Product X. Production of the finished 500,000
a. 11,000,000 product would not have been undertaken without the patent.
b. 15,800,000 * Special equipment to be used solely for development of Product X. The 4,000,000
c. 9,700,000 equipment has no other use and has an estimated useful life of four
 years. a. 5,000,000
* Labor and material costs incurred in producing a prototype model 3,000,000 b. 7,000,000
* Cost of testing the prototype 2,000,000 c. 4,000,000
d. 6,500,000

14. To increase sales, Quezon Company inaugurated a promotional campaign on June 30,
What is the total amount of costs that will be expensed when incurred?
2005. Quezon placed a coupon redeemable for a premium in each package of cereal sold at
a. 9,000,000
P200. Each premium costs P100. A premium is offered to customers who send in 5
b. 9,500,000
coupons and a remittance of P30. The distribution cost per premium is P20. Quezon
c. 6,000,000
estimated that only 60% of the coupons issued will be redeemed. For the six months ended
d. 5,000,000
December 31, 2005, the following is available:

Packages of cereal sold 100,000

11. On January 1, 2005, Caliraya Company had capitalized cost of P10,000,000 for a new
computer software product with an economic life of 4 years. Sales for 2005 for the software Premiums purchased 10,000
product amounted to P4,000,000. The total sales of the software over its economic life are Coupons redeemed 40,000
expected to be P20,000,000. However, the pattern of the future sales from the computer
software cannot be determined reliably. What is the estimated liability for coupons on December 31, 2005?
a. 1,080,000
In its 2005 income statement, Caliraya should record amortization of computer software b. 1,000,000
at c. 720,000
a. 2,500,000 d. 360,000
b. 5,000,000
c. 2,000,000
d. 0 15. Sariaya Company includes one coupon in each box of laundry soap it sells. A towel is
offered as a premium to customers who send in 10 coupons and a remittance of P5. Data for
During 2005, Jamindan Company incurred costs to develop and produce a routine, low-risk the premium offer are:
computer software product as follows:
2004 2005
Completion of detail program design 1,500,000 Boxes of soap sold 1,000,000 1,500,000
Cost incurred for coding and testing to establish technological feasibility 500,000 Number of towels purchased at P50 per towel 40,000 65,000
Other coding costs after establishment of technological feasibility 2,500,000 Number of towels distributed as premium 35,000 58,000
Other testing costs after establishment of technological feasibility 2,000,000 Number of towels to be distributed as premium next period 3,000 5,000
Costs of producing product masters for training materials 3,000,000
Duplication of computer software and training materials from In its 2005 income statement. Sariaya Company should report premium expense at
product master 4,000,000 a. 3,000,000
Packaging product 1,000,000 b. 2,700,000
c. 2,610,000
d. 2,835,000
12. In the December 31, 2005 balance sheet, what amount should be capitalized as software
cost subject to amortization?
a. 7,500,000
b. 4,500,000 MAS
c. 9,500,000
d. 8,000,000 1. Bully Corporation purchases raw materials on July 1. It converts the raw materials into
inventory by September 30. However, Bully pays for the materials on July 20. On October
13. In the December 31, 2005 balance sheet, what amount should be reported as inventory? 31, it sells the finished goods inventory. Then, the firm collects cash from the sale 1
 month later on November 30. If this sequence accurately represents the average working
capital cycle, what is the firm's cash conversion cycle in days? 7. Merkle, Inc. has a temporary need for funds. Management is trying to decide between not
A. 92 days. B. 133 days. C. 123 days. D. 153 taking discounts from one of their three biggest suppliers, or a 14.75% per annum
days. renewable discount loan from its bank for 3 months. The suppliers' terms are as follows:
Fort Co. 1/10, net 30
2. Jumpdisk Company writes checks averaging $15,000 a day, and it takes five days for Riley Manufacturing Co. 2/15, net 60
these checks to clear. The firm also receives checks in the amount of $17,000 per day, Shad, Inc. 3/15, net 90
but the firm loses three days while its receipts are being deposited and cleared. What is Using a 360-day year, the cheapest source of short-term financing in this situation is
the firm’s net float in dollars? A. The bank. C. Riley Manufacturing Co.
a. $126,000 b. $ 75,000 c. $ 32,000 d.$ 24,000 B. Fort Co. D. Shad, Inc.

8. A company obtaining short-term financing with trade credit will pay a higher percentage
3. If a firm had been extending trade credit on a 2/10, net/30 basis, what change would be financing cost, everything else being equal, when
expected on the balance sheet of its customer if the firm went to a net cash 30 policy? A. The discount percentage is lower.
a. Increased payables and increased bank loan. B. The items purchased have a higher price.
b. Increased receivables. C. The items purchased have a lower price.
c. Decreased receivables. D. The supplier offers a longer discount period.
d. Decrease in cash.

4. The level of accounts receivable will most likely increase as 9. Williams Co. is interested in measuring its overall cost of capital and has gathered the
a. Cash sales increase and number of says sales. following data. Under the terms described below, the company can sell unlimited
b. Credit limits are expanded, credit sales increase, and credit terms remain the same. amounts of all instruments.
c. Credit limits are expanded, cash sales increase, and aging of the receivables is ➢ Williams can raise cash by selling P1,000, 8%, 20-year bonds with annual interest
improving. payments. In selling the issue, an average premium of P30 per bond would be
d. Cash sales increase, current receivables ratio to past due increases, credit limits received, and the firm must pay flotation costs of P30 per bond. The after-tax cost of
remain the same. funds is estimated to be 4.8%.
➢ Williams can sell 8% preferred stock at P105 per share. The cost of issuing and
selling the preferred stock is expected to be P5 per share.
5. A change in credit policy has caused an increase in sales, an increase in discounts ➢ Williams’ common stock is currently selling for P100 per share. The firm expects to
taken, a reduction of the investment in accounts receivable, and a reduction in the pay cash dividends of P7 per share next year, and the dividends are expected to
number of doubtful accounts. Based on this information, we know that: remain constant. The stock will have to be underpriced by P3 per share, and flotation
a. Net profit has increased. costs are expected to amount to P5 per share.
b. The average collection period has decreased. ➢ Williams expects to have available P100,000 of retained earnings in the coming year;
c. Gross profit has declined. once these retained earnings are exhausted, the firm will use new common stock as
d. The size of the discount offered has decreased. the form of common stock equity financing.
➢ Williams’ preferred capital structure is
Long-term debt 30%
6. A strict credit and collection policy is in place in Star Co. As Finance Director you are Preferred stock 20%
asked to advise on the propriety of relaxing the credit standards in view of stiff Common stock 50%
competition in the market. Your advise will be favorable if What are the corresponding weighted-average cost of capital under each financing
a. The competitor will do the same thing to prevent lost sales.
b. there is a decrease in the distribution level of your product, and a more aggressive needs?
stance in necessary to retain market share.
c. The projected margin from increased sales will exceed the cost of carrying the
incremental receivables. A. B. C. D.
d. The account receivable level is improving, so the company can afford the carrying P200,000 6.5% 6.8% 4.5% 7.3%
cost of receivables. P1,000,000 6.8% 4.8% 6.5% 9.1%
 A. BC 1 week and EF 1 week C. EF 2 weeks
B. BC 2 weeks D. DE 1 week and EF 1week
10. A beverage stand can sell either soft drinks or coffee on any given day. If the stand sells
soft drinks and the weather is hot, it will make P2,500; if the weather is cold, the profit will
14. Following is a table for two separate product lines, X and Y:
be P1,000. If the stand sells coffee and the weather is hot, it will make P1,900; if the
weather is cold, the profit will be P2,000. The probability of cold weather on a given day Probability X Profit Y Profit
at this time is 60%. 20% P5,000 P 500
The expected payoff for either selling coffee or soft drinks and the expected payoff if the 70% 3,000 4,000
10% 6,000 8,000
vendor has perfect information are The product line to obtain maximum utility for a risk-averse decision maker is
A. X because it has the highest expected profit.
B. Y because it has the highest dispersion
A. B. C. D. C. Y because it has the highest expected profit
Coffee P1,360 P1,960 P2,200 P3,900 D. X because it has the lowest dispersion
Soft drinks P1,600 P1,600 P1,900 P1,900
Perfect Information. P3,000 P2,200 P1,360 P1,960 15. Reina, Inc. has a target total labor cost of P3,600 for the first four batches of a product.
Labor is paid P10 an hour. If Soft expects an 80% learning curve, how many hours
11.Critical Path Method (CPM) is a technique for analyzing, planning, and scheduling large, should the first batch take?
complex projects by determining the critical path from a single time estimate for each
A. 360 hours C. 140.63 hours
event in a project. The critical path:
B. 57.6 hours D. 230.4 hours
A. Is the shortest path from the first event to the last event for a project.
B. Is an activity within the path that requires the most number of time. 14. Cause Company is planning to invest in a machine with a useful life of five years and no
C. Is the earliest time to complete the project. salvage value. The machine is expected to produce cash flow from operations, net of
D. Is the maximum amount of time an activity may be delayed without delaying the total income taxes, of P20,000 in each of the five years. Cause’s expected rate of return is
project beyond its target time. 10%. Information on present value and future amount factors is as follows:
12. A major advantage of obtaining a package of applications programs from a software 1 2 3 4 5
vendor is Present value of P1 at .909 .826 .751 .683 .621
A. the likelihood of reducing the time span from planning to implementation 10%
B. the ability to more easily satisfy the unique needs of users Present value of an
C. greater operating efficiency from the computer annuity of P1 at 10% .909 1.736 2.487 3.170 3.791
D. the assurance the programs will be written in a high-level language Future amount of P1 at 1.100 1.210 1.33 1.464 1.611
10%
13. Clara Building Corporation uses the critical path method to monitor construction jobs. Future amount of an
The company is currently 2 weeks behind schedule on Job 181, which is subject to a annuity of P1 at 10% 1.000 2.100 3.310 4.641 6.105
P10,500-per-week completion penalty. Path A-B-C-F-G-H-I has normal completion time How much will the machine cost?
of 20 weeks, and critical path A-D-E-F-G-H-I has a normal completion time of 22 weeks.
The following activities can be crashed:
Activities Cost to Crash 1 Week Cost to Crash 2 Weeks A. P32,220 C. P75,820
BC P 8,000 P15,000 B. P62,100 D. P122,100
DE 10,000 19,600
EF 8,800 19,500 15. Which of the following would decrease the net present value of a project?
Clara desires to reduce the normal completion time of Job 181 and, at the same time, A. A decrease in the income tax rate
B. A decrease in the initial investment
report the highest possible income for the year. Clara should crash C. An increase in the useful life of the project
D. An increase in the discount rate
AP Based on the audit information above, determine the correct balance of the following:
A B C D
In your audit of the gorgeous Corporation financial statements as of and for the period ended 1. Current assets 1,280,000 1,180,000 1,130,000 1,030,000
December 31,2006, you obtained the following balance sheet prepared by the company’s
accountant: 2. Non-current assets1,830,000 1,780,000 1,720,000 1,670,000
ASSETS
Cash and cash equivalents 325,000 3. Total assets 2,850,000 2,950,000 3,010,000 3,110,000
Accounts Receivable 275,000
Marketable securities, at FMV as of 12/31/06 955,000 4. Current liabilities 350,000 353,000 450,000 453,000
Prepayments 50,000
Land 900,000 5. Non-current liabilities 50,000 250,000 300,000 653,000
Building 600,000
Machinery and Equipment 330,000 6. Total contributed capital
TOTAL 3,435,000 2,040,000 2,000,000 1,940,000 1,900,000
LIABILITIES AND CAPITAL
Current Liabilities 325,000 7. Accum. profits,unappropriated
Non-current liabilities 250,000 407,000 332,000 157,000 82,000
Ordinary shares,P25,par,50,000 shares issued 1,250,000
Share Premium 750,000 8. Total stockholder’s equity
Reserve for depreciation-Building 50,000 2,197,000 2,397,000 2,497,000 2,850,000
Reserve for depreciation-Machinery and Equipment 110,000
Reserve for self insurance 75,000 Talisay Corporation presented the following balance sheet for Dec.31,2007:
Accumulated profits 625,000 ASSETS
TOTAL 3,435,000 Current Assets P30,000
The company incorporated on January 1,2006 and was authorized to issue 100,000 Treasury shares (at market, cost is P15,000) 14,000
ordinary shares at P25 par value.50,000 of these shares immediately issued. Fixed Assets 56,000
Audit notes: Total Assets 100,000
a. Cash and cash equivalents includes bank overdrafts amounting to P75,000. LIABILITIES AND SHAREHOLDER’S EQUITY
b. Accounts receivable is net of a 6-months, 12% P100,000 loand payable due on Current liabilities P20,000
March 31,2007 to which a P150,000 receivables were assigned. Interest is yet to be Ordinary shares subscribed (500 shares) 10,000
accrued on the loan. Long term debt 8,000
c. Marketable securities include 10,000 Gorgeous Corporation shares acquired by the Total liabilities 38,000
company at P50 per share. Gorgeous Corporation shares were currently selling at Ordinary shares (4,000 shares Issued) P18,000
P60 per share as of December 31, 2006. Increase in the securities’ value were 10% Preference shares (1,000 shares issued) 12,000
charged to current operations. Subscription receivable (4,000)
d. Current Liabilities include a P50,000, deferred tax liabilities on temporary non-taxable Reserve for depreciation 16,000
item expected to reverse in 2007. Accumulated profit 20,000
e. Current liabilities also include a 10% share dividends payable amounting to Total Shareholder’s equity 62,000
P100,000(charged to accumulated profits) declared on December 31,2006 to Total liabilities and shareholder’s equity P100,000
stockholders as of the same date distributable on February 1,2007. Your investigation of Talisay’s corporation’s financial records indicates that all
f. On December 30,2006, the board also approved the retirement of half of its authorized shares have been either issued or subscribed.
reacquired shares. The par values for the ordinary and preference shares are P2 and P10, respectively. The
g. The company’s board of directors approved a plan to “self-insure” for probable fire treasury shares were originally purchased when the market price was P20 per share.
losses because of its previous safety record and to avoid high insurance premiums. During 2007, 250 Treasury shares were resold for P25 per share. A gain on treasury
The company debited insurance expense and credited reserve for self-insurance share transactions’ was credited for the difference between the original cost and the
account for P75,000,the average annual premium on applicable insurance policy.
 selling price. Furthermore, the excess of cost over market of the treasury shares at the 4. A was having his house repaired by B, who needed certain materials. So A told the
end of the period was recognized as an unrealized loss on the 2007 income statement. storeowner, “Give B the materials. I shall be responsible. I shall stand good.” This
You also discovered that a majority stockholder donated during 2007, a land which was orally entered into.
originally costed the stockholder P5,000 but with a market value of P9,000 during the a. The contract is unenforceable because A made an oral agreement to answer for
date of donation. the default of another, that is, B.
Subscription receivable are due six months from December 31,2007. b. The contract is enforceable because A did not make a special promise to answer
Determine the adjusted balances of the following: for the default of another person.
A B C D c. The contract shall be enforceable if there is ratification by A.
9. Total assets 79,000 83,000 97,000 99,000 d. The contract shall be enforceable if it has been executed.
10. Total liabilities 20,000 28,000 38,000 48,000 5. A and B mutually promised to marry each other. The promise being verbal and
11. Additional paid in capital 30,000 31,250 19,000 21,000 without any witnesses to the promise, A did not marry B. B is now suing A for
12. Total contributed capital 40,250 41,250 50,250 98,000 damages. Decide:
13. Accu. Profits, end 20,000 21,000 19,750 18,750 a. The contract is unenforceable; hence, A is not liable.
14. Treasury shares 14,000 18,750 20,000 15,000 b. The contract is unenforceable because mutual promise to marry is covered by
15. Total shareholder’s equity 83,000 69,000 62,000 55,000 the Statute of Frauds.
c. A is liable for damages even if the contract is unenforceable.
d. A may be liable for damages because mutual promise to marry is not covered by
BLT the Statute of Frauds.

1. A verbal agreement was made between A and B whereby A agreed to sell and B 6. A and B, neighbors, orally agreed that from that day, B would not erect a garage on
agreed to buy A’s farm for P100,000.00 . The price was paid. Possession was not his property till after three years. A week later, B begun to erect a garage in violation
given nor was the deed delivered, both being refused. The contract is: of the agreement. A complains and B sets up the defense of the contract being
a. Rescissible unenforceable. Decide:
b. Voidable a. The contract is unenforceable because it is not to be performed within one year
c. Unenforceable from the making thereof, and it is oral.
d. Void b. B can be compelled to demolish the fence because he failed in his obligation not
to do.
2. A orally leased to B his car for two years. No delivery of the car was made and no c. A can have a third person to undo what has been done by B in violation of his
payment of the rentals was given. A refuses to pay the rentals in advance as agreed obligation not to do.
upon. d. A has the right to complain and enforce the contract because it is enforceable.
a. A may rightfully refuse because the contract is unenforceable.
b. A cannot refuse because the contract is enforceable. 7. A and B agreed that A would sell and B would buy A’s radio for P200.00 three years
c. B cannot compel A to do something against the latter’s will. from the date of agreement. At the end of the three years, A refused to hand over the
d. The contract is reciprocal and therefore A cannot be compelled to pay because radio although B was willing to pay. Is A bound to deliver the radio sold?
there was no delivery of the car. a. A is obliged to deliver what he sold since it was an enforceable sale.
b. A is obliged to deliver if B is ready to pay the price.
3. A borrowed money from B with C as guarantor. The contract of loan of P1M was not c. A is not bound to deliver because the sale is unenforceable.
in writing while the guarantee was written. B now is demanding payment from C d. A is not bound because the sale is void.
because A failed to pay. Is C liable?
a. C is liable because the guaranty is enforceable 8. A forced B to sell to him (A) his ring. B sued for annulment, but A had already lost
b. C is not liable because the accessory contract of guaranty is void since the the ring through fortuitous event. Is A liable for the loss?
principal contract of loan is void. a. A is liable for the loss even it was due to fortuitous event because of his bad
c. C is liable because the guaranty is enforceable. faith.
d. C is not liable because the contract of loan is in amount exceeding P500.00 b. A is not liable because the loss was without his fault.
which must be in writing to be enforceable. c. A is liable to pay damages if he cannot replace the ring.
 d. A is not liable because no one shall be responsible for the loss of a thing due to Cash sales P 560,000
fortuitous event.
Sale on installment payment basis (initial payments
9. J. Santos, VAT-registered, made the following purchases during the month of
January, 2008: do not exceed 25% of the selling price,
Goods for sale, inclusive of VAT P 246,400
Supplies, exclusive of VAT 20,000 collection for the period equal to P100,000) 336000
Office airconditioners, total invoice amount 56,000
Home appliances for residence, gross of VAT 17,920
Repair of store, contractor not VAT-registered, total invoice amount 33,600
Repainting of store, total invoice amount evidenced by The real property sold for cash had a zonal value of P600,000 (excluding VAT) and
ordinary receipt of contractor 4,480 the property sold under deferred payment basis had a fair market value of P200,000
(excluding VAT)
Mr. Santos applies for refund of VAT on office air conditioners. Creditable input taxes
are:
a. P34,800 b. P28,800 c. P35,280 d. P34,670
How much is the output VAT on the sale of real property?
10. The following, except one, are administrative remedies of the taxpayer:
a. Appealing, the decision of the Revenue district officer/Revenue district Director to the a. P9600 b. P84000 c. P108,000 d. P72,000
Commissioner of Internal Revenue;
b. Appealing the final decision of the Bureau of Internal Revenue Commissioner to the
Court of Tax Appeals;
c. Protesting the assessment within the reglamentary period; 13. A revenue regulation that provides for a computation of a deficiency tax in a certain
d. Tax minimization schemes. way and/or at a certain amount. Which would give the taxpayer complying with it
immunity from examination of his liability for the tax:
11. Miriam Santiago, a business woman, incurred the following losses in 2008: Statement 1. Finds statutory basis on the Commissioner’s power to enter into
1. Wagering losses at Casino Filipino P86,000
compromise on matters regarding taxes:
Note: Wagering winnings amounted to P14,000

2. Loss on sale of company car to Red Co. 54,000

Statement 2. Finds Statutory basis on the Commissioner’s power to abate taxes.
Note: Miriam Santiago owns 60% of the stocks of Red Co.
The first statement is true while the second statement is false;
3. Loss on sale of office computers to Miriam Sto. Domingo, 40,000
The first statement is false while the second statement is true;
cousin of Miriam Santiago
Both statements are true;

Both statements are false.

The deductible loss of Miriam Santiago is:
14. When distraint and levy are availed of simultaneously by the Commissioner as a
a. P190,000 b. P104,000 c. P54,000 d. None
remedy to enforce tax collection:
a. Taxpayer is out of the country;
b. When the property subject of either remedy is not sufficient to satisfy the tax
12. Jolas Realty Corp. in the course of the trade sells real property. During the month of
obligations;
January 2008 had the following data per sales document (VAT included):
c. When there is a court order to do so;
 d. Taxpayer is engaged in unlawful activity. • Expenses pais fromthe joint venture cashwas P150,000 by Mac and P19500
• Cost of unsold canned goods, which Mac and Jolly agreed to assume were, P4,500
and P7,000, respectively.
15. May the tax collection of taxes be barred by prescription?
3. What was the total sales of the joint venture?
a. No, it can not be barred by prescription because taxes are for the support of
government; A. 559,500
b. Yes, collection of taxes can be barred by prescription. However, if tax law does not B. 536,500
provide for prescription, the right of government to collect taxes becomes C. 525,000
imprescriptible; D. 334,500
c. No. only the courts of law can allow action to prevent collection of taxes; 4. What was the joint venture gain or loss?
d. No, collection of taxes can not be barred by prescription. What can be barred by
A. 202,000
prescription is assessment of taxes.
B. 213,500
C. 224,000
P2 D. 236,500
5. In the final settlement, what was the total amount due to Mac including his
The ABC partnership has assets with book value of P240,000 and a market value of investment?
P195,000, outside liabilities of P70,000, loans payable to Partner Able of P20,000, and a A. 256,500
capital balances for Partner Able, Baker, and Chapman of P70,000, P30,000, and P50,000, B. 258,000
respectively. The partners share profits and losses equally. C. 263,750
D. 268,250
1. How would the first P100,000 of available assets be distributed?
A. P70,000 to outside liabilities, P20,000 to Able, and the balance equally among The ff were found in your examination of the interplant accounts between the Home Office
partners. and the Butuan Branch:
B. P70,000 to outside liabilities, and P30,000 to Able
C. P70,000 to outside liabilities, P25,000 to Able, and P5,000 to Chapman a. Transfer of fixed assets from Home Office amounting to P53,960 was not booked by
D. P40,000 o Able, P20,000 to Chapman, and balance equally among partners. the branch.
b. P10,000covering marketing expense of another branch was charged by the Home
2. If all outside creditors and loans to partners had been paid. How would the balance of Office to Butuan.
the assets be distributed assuming Chapman had already received assets with a c. Butuan recorded a debit note oninventory transfers fromHome Office of P75,000
value P30,000? twice.
A. Each of the partners would receive P25,000. d. Home Office recorded cash transfer of P65,700 from Butuan Branch as coming from
B. Each of the partners would receive P40,000. Davao Branch.
C. Able:P70,000, Baker: P15,000, Chapman:P20,000 e. Butuan reversed a previous debit memo from Cagayan de Oro Branch amounting to
D. Able:P55,000, Baker: P15,000, Chapman:P5,000 P10,500. Home Office decided that this charge is appropriately Davao Branch’s cost.
f. Butuan recorded a debit memo from Home Office of P4,650 as P4,560.
Mac and Jolly, in a joint venture, contributed P150,000 each in order to purchase canned
goods which are sold by lots at a “closing-out” sale. They agreed to divide their profits equally 6. The net adjustment in the home office books related to the Butuan Branch Current
and each shall record his purchases, sales, and expenses in his own books. After account is:
sellingalmost all of the canned goods, they wind up their venture. The ff data relate to the A. 75,700
venture transactions: B. 65,700
C. 86,200
• Joint venture credit balance of Mac was P120,000, and Jolly wasP105,000. D. 94,820
 7. The net adjustment in Butuan’s books related to the home office account is: D. 685,358
A. 33,335 13. The unrealized gross profit at the end of year 3 is:
B. 31,450 A. 211,047
C. 20,950 B. 161,166
D. 10,450 C. 198,574
8. Before the above discrepancies were given effect, the balance in the home office D. 217,574
books of its Butuan Branch Current account wasdebit balance f P165,920. The
unadjusted balance in the Butuan Branch books of its Home Office Current account 14. Shake’s Inc., franchisor, enters into a franchising agreement with Sha, franchisee, on
must be: June 30,2011. The agreement calls for a total franchise fee of P1,000,000 of which
A. 92,336 P100,000 is payable upon signing of the contract and the balance in four equal semi-
B. 98,230 annual installments. It is agreed that the down payment is non-refundable
C. 104,500 notwithstanding lack of substancial performance of services by the franchisor.
D. 111,170 When Shake’s Inc. prepares its financial statements as of June 30,2011, the
9. The adjusted balance of the reciprocal accounts is: unearned franchise fee to be reported is:
A. 84,807 a.P0 b.P100,000 c.P900,000 d.P1,000,000
B. 90,220 15. Trial balances for the home office and the branch of the Tony co. show the following
C. 99,200 accounts before adjustment, on December 31, 2011. The home office policy of billing
D. 109,120 the branch for the merchandise is 20% above cost.
Home office Branch
The data pertain to instalment sales of Mickey’s store: Unrealized intercompany inventory profit P10,800
Shipments to branch 24,000
• Down payment, 20%.
Purchase (outsiders) P7,500
• Instalment sales: P545,000 in Year 1; P785,000 in Year 2; and P968,000 in Year 3.
Shipments from home office 28,800
• Mark-up on cost, 35%. Merchandise inventory, December 1, 2011 45,000
• Collections after down payment: 40% in the year of sale, 35% in the year after sale, What part of the branch inventory as of December 1,2100 represent purchase from
and 25% in the third year. outsiders and what part represents goods acquired from the home office:
10. The realized gross profit in year 1 is: Outsiders Home office
A. 109,357 a.P12,000 P33,000
B. 73,474 b. 16,500 28,500
C. 99,190 c. 15,000 30,000
D. 114,825 d. 9.000 36,000
11. The unrealized gross profit for instalment sales made during Year 2, as of the end of
Year 2 is:
A. 97,689
B. 131,880
C. 141,112
D. 114,063
12. The instalment account receivables at the end of year 3 is:
A. 652,722
B. 621,640
C. 602,991